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Coty Inc. v. Cosmopolitan Cosmetics Inc.

United States District Court, S.D. New York

January 9, 2020

COTY INC., CALVIN KLEIN TRADEMARK TRUST, CALVIN KLEIN, INC., CALVIN KLEIN COSMETIC CORPORATION, HUGO BOSS TRADE MARK MANAGEMENT GMBH & CO. KG, and MARC JACOBS TRADEMARKS, LLC, Plaintiffs,
v.
COSMOPOLITAN COSMETICS INC., EUGENE ABRAHAM, and WILLIAM GOLD, Defendants.

          MEMORANDUM OPINION AND ORDER

          LAURA TAYLOR SWAIN UNITED STATES DISTRICT JUDGE.

         Plaintiffs Coty Inc., Calvin Klein Trademark Trust, Calvin Klein, Inc., Calvin Klein Cosmetic Corporation, HUGO BOSS Trade Mark Management GmbH & Co. KG, and Marc Jacobs Trademarks, LLC bring this action against Cosmopolitan Cosmetics Inc., Eugene Abraham, and William Gold (collectively “Defendants”). All Plaintiffs other than Coty Inc. bring claims of trademark infringement and trademark counterfeiting under Section 32(1) of the Trademark Act of 1946 (the “Lanham Act”), 15 U.S.C. § 1114(1), and, along with Coty Inc., claims of unfair competition and false designation of origin under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and unfair competition under New York common law. Plaintiffs seek permanent injunctive relief, an accounting, treble profits, treble damages, compensatory damages, costs and attorneys' fees, and other relief authorized by the Lanham Act. Defendants move to dismiss Plaintiffs' First Amended Complaint (Docket Entry No. 31 (the “FAC”)) pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket Entry No. 40.)

         The Court has subject matter jurisdiction of the action under Section 39 of the Lanham Act, 15 U.S.C. § 1121, and under 28 U.S.C. §§ 1331, 1338(a), 1338(b), and 1367. The Court has reviewed all of the parties' submissions and arguments and, for the following reasons, grants in part and denies in part Defendants' motion.

         Background

         The following facts are taken from the First Amended Complaint, the well pleaded allegations of which are presumed true for the purposes of this motion.

         Plaintiff Coty Inc. manufactures, distributes, and sells luxury fragrance products under its own proprietary trademarks and under licensed marks, including CALVIN KLEIN, HUGO BOSS, and MARC JACOBS pursuant to exclusive fragrance licenses (collectively, “Plaintiffs' Fragrances”). (FAC at ¶ 1.)

         Coty affixes a “Production Code” to each unit of Plaintiffs' Fragrances at the time of manufacture. (Id. at ¶ 2, 35.) The Production Codes are used for Plaintiffs' “quality assurance, anti-counterfeiting and anti-theft measure[s].” (Id. at ¶¶ 35-37.) The Production Code indicates the date of production and facilitates “corrective action or targeted recalls” in the event of any quality issue. (Id. at ¶ 36.) Plaintiffs' customers “expect consistent high quality fragrance products . . . [and] the removal of the Production Code and resulting mutilation of genuine product packaging degrades the products” in ways that “are obviously significant to the consuming public.” (Id. at ¶¶ 41-42.)

         Defendant Cosmopolitan Cosmetics (“Cosmopolitan”) is a corporation that sells fragrances to retailers and other distributors. (Id. at ¶ 15.) Cosmopolitan has been selling units of Plaintiffs' Fragrances from which the Production Codes have been removed, or on which the Production Codes have been obscured, stickered or otherwise mutilated (hereinafter, the “Decoded Products”). (Id. at ¶ 45.) Plaintiffs did not authorize the sale of the Decoded Products; products are decoded to conceal the identity of the seller who is diverting the products outside of authorized distribution channels. (Id. at ¶ 40.) Defendants Eugene Abraham and William Gold are the CEO and President of Cosmopolitan, respectively, and Plaintiffs allege that they control the acts of Cosmopolitan that are described in the complaint and that they are “directly responsible for or ha[ve] otherwise orchestrated” the trademark infringement activities. (Id. at ¶¶ 16, 17.)

         Discussion

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). The complaint must proffer sufficient non-conclusory facts to “plausibly suggest an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009). A complaint that contains only “naked assertion[s]” will not suffice. Twombly, 550 U.S. at 557.

         A claim for trademark infringement arises when a person uses a registered mark in commerce in connection with the sale of a good without the consent of the registrant and in a manner likely to cause confusion about the source of the goods. See Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6 (2d Cir. 1996). However, the “First Sale Doctrine” carves out an exception for the resale of “genuine goods bearing a true mark even though the sale is not authorized by the mark owner.” Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 61 (2d Cir. 1992) (quoting NEC Electronics v. Cal Circuit Abco, 810 F.2d 1506, 1509 (9th Cir. 1987)).

         There are two exceptions to the First Sale Doctrine that are relevant to Plaintiffs' claims: the Quality Control Exception and the Material Difference Exception. The Quality Control Exception applies when goods do not conform to the trademark holder's quality control standards. See Polymer Tech. Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir. 1994). The Material Difference Exception applies if the goods differ in a way that would likely be relevant to a consumer's decision to purchase them. See Davidoff & Cie, S.A. v. PLD Int'l Corp., 263 F.3d 1297, 1302 (11th Cir. 2001).

         Plaintiffs invoke the Quality Control Exception. As the Second Circuit has observed, “[o]ne of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder's trademark.” El Greco Leather Prods. Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986). “[T]he actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain.” Id. Moreover, “a trademark holder is not required to adopt the most stringent quality control procedures available, ” but is instead permitted to make a business judgment about the type of procedures to implement. Warner-Lambert, 86 F.3d at 6-7. Applying these considerations, the Second Circuit has held that, to establish that a product is not genuine because it does not meet the trademark holder's quality control standards, a “trademark holder must demonstrate only that: (i) it has established legitimate, substantial, and nonpretextual quality control procedures, (ii) it abides by these procedures, and (iii) the non-conforming sales will diminish the value of the mark.” Id. at 6.

         Defendants argue that the Quality Control Exception is unavailable because Plaintiffs have pleaded that the Production Code measure was implemented by Coty, a licensee, rather than by the trademark owner, and because Plaintiffs do not apply Production Codes to every unit of each of their fragrances. Defendants' arguments are unavailing at this preliminary stage of the proceeding. In analyzing claims asserted under the Quality Control Exception, courts in the Second Circuit have considered whether goods conform with the quality control procedures implemented by a licensee as well as measures implemented by the trademark holder itself. See, e.g., Zino Davidoff SA v. CVS Corp., 571 F.3d 238 (2d Cir. 2009) (finding that goods were not genuine where they failed to meet quality control measures developed jointly by the trademark holder and licensee); L'Oreal USA, Inc. v. Trend Beauty Corp., No. 11-CIV-4187 (RA), 2013 WL 4400532, at *15 (S.D.N.Y. Aug. 15, 2013) (finding that goods were not genuine where they lacked markings used by the exclusive licensee to maintain quality control); Zip Int'l Grp., LLC v. Trilini Imps., Inc., No. 09-CIV-2437 (JG) (VVP), 2011 WL 2132980, at *4 (E.D.N.Y. May 24, 2011) (stating that the quality control exception requires that Plaintiff produce “evidence to demonstrate that [Defendant's] goods are not subject to the same type or measure of quality control ...


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